Wednesday, June 22, 2022

Can Social Security Be Garnished For Credit Card Debt

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What If You’re Retired And Can’t Afford Your Debt

Can Debt Collectors Garnish Social Security?

In a perfect world, debt payments wouldn’t be part of your retirement years. But the reality is, it’s often unavoidable. Retired or not, you have options if you’re struggling to make debt payments, particularly when you owe the federal government.

You can typically get approved for an IRS payment plan in just a few minutes online if you owe taxes. If you have federal student loans — including Parent PLUS loans that you took on for your child’s education — an income-driven repayment plan that will cap your payment at a percentage of your income is probably an option. You may also be able to ask a court to modify payments you’ve been ordered to make.

The bottom line is, if you’re trying to protect your Social Security checks from garnishment, it pays to be proactive. Take action as soon as you know you won’t be able to make a payment.

What Happen Before The Irs Garnishes Social Security

The IRS will send you a letter notifying you of their intention to levy before seizing your Social Security payments. The IRS will first send you a notice stating their plan to seize your benefits.

This notice, known as a Final Notice Before Levy on Social Security Benefits IRS Form CP91 or CP298, is an example of an IRS form. If you receive a Final Notice from the IRS, you will have 30 days to respond. The notice will also tell you your appeal rights.

If you believe that you are not responsible for back taxes, you may appeal to the Office of Appeals at the IRS. The Office of Appeals is a distinct entity within the IRS that handles tax disputes.

If you do not pay your outstanding taxes or sign up for a repayment plan, the Social Security Administration will deduct 15% from your monthly check.

How Long Does Credit Card Debt Last

Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit scores may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.

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Can My Social Security Benefits Be Garnished

May 28, 2020 by Harris Guidi Rosner

Social Security recipients often deal with great financial stress. Typically, they may be unable to work due to age or disability and debt tends to pile up. One common question we hear from our clients is whether or not Social Security benefits can be garnished.

Fortunately, Congress has protected Social Security benefits from many kinds of creditors and benefits cannot be garnished for consumer debt like credit cards, medical bills, and personal loans. Although Social Security income is protected, this protection does not extend to any collateral that secures the debt, and a creditor will not be stopped from repossession or foreclosure action simply because the debtor receives Social Security benefits. We encourage clients to receive their benefits from Social Security through direct deposit. We also advise clients to keep Social Security payments in the same account they were initially deposited into. In other words, we advise against transferring Social Security payments to other accounts after they are received. This adds an extra layer of protection because it prevents your bank from freezing your account in response to a garnishment order while you defend against it in court.

If you need assistance in obtaining Social Security benefits, contact us to get in touch with an experienced attorney who can help you during the process. Please call us at 777-7777 or email us using our contact form.

Two Common Mistakes That Put Your Social Security At Risk

Can My Social Security or SSI Be Garnished?

Under both federal and Colorado law, Social Security is exempt, or safe, from the vast majority of your creditors. For example, if you are sued by a credit card company and they get a judgment against you, they cant garnish the Social Security directly from the U.S. Department of the Treasury. However, once those funds make it into your bank account, two common mistakes put them at risk of being frozen, requiring a fight to get them back, or taken outright.

Mistake #1: Commingling

For the purpose of protecting Social Security funds, commingling mean mixing Social Security with any other money such as wages, unemployment benefits, someone elses Social Security, gifts, etc. When you mix your Social Security with other funds, it can be argued that the Social Security loses its exempt status and becomes fair game for your creditors. This argument may be overcome in some circumstances, but why create the risk when avoiding the fight is so easy?

Whats the Solution? Open a brand new account at a bank to which you dont owe any money , and make sure that the only money that ever goes into that account is from Social Security. You can pay bills out of the account and withdraw cash like normal .

Mistake #2: Not Having Your Social Security Directly Deposited Into Your Bank Account

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Other Ways To Collect

If Social Security benefits are your only source of income, private creditors and debt collectors have limited options to get their money. They cant garnish your Social Security income and they cant levy your bank account as long as it only contains Social Security income that was put there via direct deposit.

But if you owe a substantial amount of debt, companies may not give up easily on attempting to collect. Just because Social Security makes up your only source of income doesnt mean that creditors and debt collectors dont have other means to try to recuperate the money you owe them.

Companies may opt to take other actions if they cant access your Social Security funds to collect a debt. These actions might include:

  • Reporting negative information to the credit bureaus. Late payments, charge-offs and other derogatory credit information may lower your credit scores. This could make it difficult to qualify for new financing or services in the future.
  • Selling your account to a collection agency. Collection accounts may result in additional credit damage. Plus, even if your credit scores are still in decent shape, some lenders may require you to pay off outstanding collection accounts before you can qualify for new financing.
  • Can Debt Collectors Go Into Your Bank Account

    Rest assured that a debt collector can’t simply walk into your bank and take money from your account without authorization from you or a court decision. … If the collector fulfills their obligation in proving you owe the debt, and you don’t pay up on the debt, then the debt collector can legally sue you.

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    Can A Bank Garnishment Be Reversed

    If a creditor’s garnishment or levy seized funds that are considered exempt under bankruptcy law, then that transfer can be reversed by the court and the funds may be returned to you. … If creditors have begun garnishing your wage or levying your bank accounts, contact us to today to discuss how bankruptcy can help you.

    What Is Judgment Proof

    Can My Social Security Benefits Be Garnished

    There are two major phases of a lawsuit filed against you by a creditor. The first phase is the creditor getting a judgment against you. The next phase is the creditor proceeding to collect on the judgment.

    If you have no assets or income, or your only income is Social Security benefits, then youâre judgment proof. This means almost all creditors have no way of collecting on the debt. Note that being judgment proof doesnât mean that a creditor wonât sue you, it just means they have no way of collecting the debt that is owed.

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    Can Social Security Benefits Be Garnished For Debt

    Your social security benefits may be garnished for debt, depending on what kind of debt it is.

    Social Security promises to provide income to older Americans, but what happens to that income when you have debt? Unfortunately, the answer depends on the kind of debt you owe. Below is an explanation of when debt can lead to social security garnishment and when your payments will be kept safe.

    Can A Creditor Garnish Or Levy My Social Security

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    In a Nutshell

    You have worked hard your entire life, but now that you have fallen victim to difficult times, you stopped making payments on your credit cards and other debts. As a result, a creditor has filed a lawsuit against you and is seeking a judgment. Are you at risk of having your Social Security taken away from you? Continue reading to learn more about how federal law protects your Social Security benefits from garnishment, levy, or seizure in most situations.

    Written byAttorney Alexander Hernandez.

      You have worked hard your entire life, but now that you have fallen victim to difficult times, you stopped making payments on your credit cards and other debts. As a result, a creditor has filed a lawsuit against you and is seeking a judgment. Are you at risk of having your Social Security taken away from you? Continue reading to learn more about how federal law protects your Social Security benefits from garnishment, levy, or seizure in most situations.

      Also Check: How Is Social Security Benefit Amount Determined

      Can Creditors Seize Social Security

      Generally no, debt collectors can’t take your Social Security or VA benefits directly out of your bank account or prepaid card. After a debt collector sues you for the debt and wins a judgment, it can get a court order for your bank or credit union to turn over money from your account or prepaid card.

      What Does Being Judgment Proof Mean

      Fact check: Social Security numbers not linked to federal bank account

      Itâs important to understand that some individuals are âjudgment proofâ when it comes to garnishments and bank account levies. Essentially, these individuals have very little income, do not have any wages available to garnish, and only own legally protected assets. If your sole source of income is Social Security retirement income, disability benefits, and/or other federal benefits, youâre likely to be considered judgement proof by the court. As a result, a law firm for a collection agency or creditor cannot secure a garnishment order, nor can they take money from your bank account, even if they somehow secured a bank account levy.

      If youâre judgment proof, itâs important that you always be very careful not to commingle your Social Security income, disability income, and other entitlement or benefits funds with other types of retirement benefits as that could complicate your situation and render some portion of your overall account subject to debt collection by credit card companies, collection agencies, and other creditors. If that happens, youâll need to navigate a legal hearing to sort out the complexities and that is a situation best avoided. To protect your entitlements and other assets, keep them separate at all times.

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      Can Credit Card Companies Garnish My Wages

      Reading time: 4 minutes

      The short answer is yes but with a large caveat. Creditors may only siphon off part of your paycheck if they have sued you and won. It takes a long time to reach this point, but that doesnt necessarily mean its a rare occurrence. The best way to avoid a lawsuit is to keep up with your monthly payments. However, if youre already struggling with debt and fear your creditors may take legal action against you, there are ways to help prevent wage garnishment.

      Can Social Security Be Garnished For State Taxes Owed

      No, If a state government is seeking to recover unpaid taxes, it does not have the same broad collection authority as the IRS when it comes to Social Security benefits.

      Additionally, most sorts of liabilities are not able to be garnished from Social Security payments. If you owe medical costs, credit cards, or personal loans, your creditors cannot seize your benefits.

      However, there is one critical thing to remember. If you do not get your money through direct deposit and mix your social security payments with other funds, the IRS could garnish your benefits through a bank account seizure.

      If your Social Security payments are subject to a state tax lien, the funds can be taken from your bank account. As a result, if you owe back taxes to the state, it might be possible for them to draw on your bank account by levying your pension benefits. Youll need to show that the money is related to your Social Security

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      Can My Bank Take My Social Security Or Ssi Checks After I Have Deposited Them In My Account

      Yes. A court case allows banks in Oregon to take money out of your account to pay back any money you owe the bank if you have signed an agreement with the bank which gives the bank this right. The bank has this “setoff” right even if the only money in your account is from Social Security or SSI checks. For example, when you applied to get a credit card or a loan from the bank, you likely signed an agreement that if you fail to make payments, the bank can pay itself back by taking money out of your account.

      Can Debt Collectors Take My Social Security Or Ssi Benefits

      Can Debt Collectors Take My Social Security Benefits if they Sue me for Old Debt?

      Usually, no. Your Social Security or Supplemental Security Income checks generally cannot be taken or garnished by creditors collecting debts. But, there are exceptions explained below.

      What can be taken out of my Social Security check to pay debts?

      • Up to 15% of your Social Security checks can be taken each year to pay federal taxes you owe.
      • Any amount over $9,000 per year can be taken to collect federal debts other than taxes.
      • Oregon law limits how much can be taken for spousal and child support. If you have a current Oregon support order, the monthly support amount can be taken. If you also owe back support, an additional 20% of the support amount will be taken. If you only owe back support, you can keep 160 times the federal minimum wage. The total amount to be taken for support can never be more than 50% of your Social Security, unless a court orders that more be taken.
      • The deductions above cannot be made against your SSI checks.
      • Deductions can be made from your Social Security and SSI checks to collect an overpayment of benefits.

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      When The Creditor Is A Commercial Entity

      When it comes to federal benefit payments, the answer is no. Were talking Social Security, Veterans Affairs benefits, railroad retirement benefits, and Office of Personnel Management retirement benefitsespecially if said creditor has issued you a credit card or an auto loan and your payment is late. Creditors holding medical bills, along with personal and payday loans, are also prohibited from garnishing these benefits. Thats according to Section 207 of the Social Security Act. Its the law.

      In regard to 401s and IRAs, the former are generally safe from garnishment by commercial creditors as long as the money stays in the account, thanks to the Employment Retirement Income Security Act of 1974 , while the first million dollars in your IRA are protected under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 .

      If youre not ordered to pay back taxes or child support, then the bank has to review the history of your account for the two months prior to receiving the garnishment order. If your Social Security or other protected benefits have been directly deposited into your accounts within that two monthsthe so-calledlook-back periodthe bank must protect the funds up to the total of the direct deposits. Youre free to spend it on anything.

      However, if youre still working, your creditor can garnish your wages and, depending on the state where you live, other allowable assets you may have, such as a house or car.

      Exceptions To The Rule

      Your Social Security benefits might be at risk if you owe any of the following:

      • Federal income tax.
      • Federal student loans.
      • Delinquent child support and/or spousal support.

      If you receive your benefits via paper check, your Social Security income might be vulnerable as well.

      Even under the exceptions above, Supplemental Security Income is off-limits for garnishment or a bank levy unless you were overpaid and the Social Security Administration is correcting an error.

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